RBS faces at least £125m cost for IT failure

Clifford Chance is carrying out independent review for the bank

Royal Bank of Scotland (RBS) has revealed in its half year results that it will suffer losses of at least £125 million as a result of the recent IT failure that impacted millions of its customers.

It told investors that the sum will “principally cover customer redress”, such as waiver of interest and charges, but additional costs may arise once all business disruption items are clear. It said that more detail will be provided in its Q3 results.

RBS has also informed Computerworld UK that law firm Clifford Chance is providing “external counsel” on what went wrong and will carry out an independent review.

The results warned of the potential legal challenges it may face going forward.

The bank said: “The incident, the group’s handling of the incident and the systems and controls surrounding the processes affected, are the subject of regulatory enquiries (both from the UK and Ireland) and the group can become a party to litigation.”

“In particular, the group could face legal claims from those whose accounts were affected and could itself have claims against third parties.”

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In July, millions of RBS customers couldn’t gain access to funds in their bank accounts after a botched upgrade that was made to batch processing software CA 7 from CA Technologies, which impacted some accounts for more than a month.

It was revealed that it was RBS’ Edinburgh-based IT staff that were responsible for the systems failure, which contradicted earlier media reports that claimed a junior IT worker based in India had made the error.

It has since been said that city regulator the Financial Services Authority (FSA) is preparing to tell UK banks to upgrade their outdated IT systems, but is waiting to hear the full details of what went wrong.

RBS’ chief executive Stephen Hester has said that the banking group may have avoided the major IT glitch if it had focused more on keeping its existing systems up-to-date, rather than developing new systems.

“RBS has seen a big mushrooming in spending on technology. With hindsight maybe a bit more of that increase in spend should have been in the core, taken-for-granted systems that work every day,” said Hester.

We have been hearing for years how CIOs and senior IT professionals need to bury the hatchet with line of business managers and, instead of focusing on the latest bleeding-edge technology for its own sake, seek to better understand the overall strategic objectives of their organisations.